Running your own business can be tough. It can feel like there are a hundred things going on at once and too many things you simply can’t control. But when it comes to your tax, there is plenty you can do to maximise your return and ensure you’re organised and ready for the tax man. To help out, we have some tax tips to help small business owners.
Get professional advice and support
Trying to handle all your own tax and finances is a recipe for disaster. A registered accountant or tax agent can handle the work for you while providing expert advice and ensuring your business is optimally structured for tax purposes.
When working with a tax advisor, make sure to keep them in the loop with everything that’s happening in your business and consult them if you’re planning on making any major business decisions that could have tax implications.
Good record keeping
When it comes to tax, good record keeping is essential. Getting sloppy or lazy with record keeping can lead to major headaches down the road. Always ensure that all your record keeping meets ATO requirements and enables your tax agent to back up all claims with documentation.
Use the appropriate record keeping technology like POS systems, accounting systems and stock control systems and carry out regular reconciliation processes to ensure there are no discrepancies.
Good taxation records should include:
- All cash income and expenses
- Accounting for any personal use of company money or assets
- Separation of private and business expenses
- All valid tax invoices
- Detailed stock records
- Vehicle log books
- Receipts or records for any deductions
Know what you can claim
Knowing what you can claim as a tax deduction is helpful for boosting your return. Basically, if you spend money on an item or service to keep your business going and it directly relates to earning income, it’s generally tax deductible. If it’s an expense that’s for a mix of personal and business use, you can claim the portion used for business. And of course, you must have the records to prove it.
While the ATO provides a detailed list of goods and services that are deductible, here is a brief list of commonly deductible business expenses:
- Motor vehicle expenses
- Home office or work-from-home expenses
- Business travel
- Worker salaries, wages and super contributions
- Repair, maintenance and replacement costs
- Operating expenses
- Depreciating assets and other capital expenses
When working out what to claim, it’s also important to have access to the most accurate and current information available. This is especially relevant for the 2020 and 2021 financial years, where the COVID-19 pandemic brought about changes to what you can claim including:
- Personal protective equipment for business use (for you, staff or customers)
- Self education for business owners carried out during lockdown
- New technology or work-related consumables required for working from home
Check your business structure
An overly complicated or inappropriate business structure can make tax reporting unnecessarily complex. It could mean you’re paying more tax than you need to or creating unnecessary work for yourself or your accountants. Talk to your tax agent to find out if restructuring your business will offer benefits from a tax point of view.
Covid-19 and disaster payments
Many businesses received various government payments or support during the COVID-19 pandemic. It’s important that you understand how these payments are supposed to be taxed.
JobKeeper payments and other COVID-related government support are assessable as income unless you have a specific exemption.
If you use money from relief payments to buy items for your business, then the normal rules of deductibility apply. Visit the ATO website or talk to your tax advisor to find out more.
Write of bad debts
You can reduce your tax bill by erasing bad debts before the end of the financial year. If the debt is unlikely to be recovered, you can write it off and prevent it from being counted as taxable income.
Carrying out a thorough inventory of your stock prior to tax time is always a good idea. By identifying any damaged, outdated or stolen stock and writing it down or writing it off, you can generate significant tax savings.
It’s also worth noting that how you value your stock on hand could lead to further tax savings. Stock can be valued at actual cost, replacement value or market selling price. Depending on which valuation method is most beneficial to your business, you could see noticeable reductions in your taxable income.